✨ Financial Risk Management Analysis
25 SEPTEMBER 2008 NEW ZEALAND GAZETTE, No. 143 3919
Committed but unpaid grants at 31 March 2007 had the following profile:
| Financial Year Approved | Number of Grants Outstanding | Value $000 |
|---|---|---|
| 2002 | 1 | 12 |
| 2004 | 1 | 64 |
| 2005 | 19 | 1,628 |
| 2006 | 111 | 19,027 |
| 2007 | 495 | 47,903 |
Market Risk
Market risk is the risk that the fair value of future cash flows from financial assets will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and market prices. Market risk is managed and monitored using sensitivity analysis and minimised by ensuring that all investment activities are undertaken in accordance with established mandate limits and the investment strategies set out in the trust’s SIPO.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair value of financial assets. The trust’s investment in global bonds is held in a pooled fund. As such, movements in interest rates will be reflected in each pooled fund’s fair value asset pricing. New Zealand bonds are held in segregated accounts. The exposure to movement in the fair value of the trust’s bond portfolios is discussed in the commentary on price risk.
The trust’s cheque and call accounts are interest bearing. Any movement in interest rates on these accounts is minimal and is not considered to be material.
Currency Risk
Currency risk is the risk that the fair value of, or future cash flows from, financial assets will fluctuate due to changes in foreign currency exchange rates. All investments denominated in foreign currencies are fully hedged back to the New Zealand dollar on a monthly basis for 30-day periods. This effectively removes the exposure to currency risk.
The timing of the implementation of hedging contracts at month end may result in small parcels of securities being unhedged. These unhedged securities, when they occur, are not considered material, and will have minimal impact on the fair value of or future cash flows from the trust’s financial assets.
At balance date the trust’s exposure to currency risk was as follows:
| 2008 $000 | 2007 $000 | |
|---|---|---|
| Foreign currency denominated financial assets | 716,429 | 680,576 |
| Less foreign currency contracts | 707,842 | 680,576 |
| Unhedged currency exposure at 31 March | 8,587 | – |
| USA and Canada | 4,551 | – |
| United Kingdom and Europe | 2,883 | – |
| Japan and Far East | 1,153 | – |
| Total unhedged currency exposure at 31 March | 8,587 | – |
Pricing Risk
Pricing risk is the risk that the fair value of financial assets will increase or decrease as a result of changes in market prices, whether these changes are caused by factors specific to individual stocks or factors affecting all financial assets in the market. Price risks arise from the trust’s investment portfolio.
The trust’s financial assets are priced at fair value by the trust’s custodian. The effect on the trust’s statement of financial performance and statement of financial position at 31 March 2008, due to a reasonably possible change in market factors is represented in the following table:
| Sensitivity Range (–1 to +1 standard deviation) | Sensitivity Impact $000 | |
|---|---|---|
| NZ equities | –7.9% to +26.1% | –8,536 to +28,201 |
| Global equities | –6.3% to +23.4% | –23,113 to +85,486 |
| NZ bonds | +2.9% to +9.4% | +6,224 to +20,176 |
| Global bonds | +2.9% to +9.4% | +7,376 to +23,190 |
| NZ cash | +4.1% to +7.1% | +2,441 to +4,228 |
| CCF’s | –10.3% to +25.7% | –7,387 to +18,432 |
| Global property | –4.0% to +20.0% | –938 to +4,694 |
| Total portfolio | +1.1% to +13.6% | +12,085 to +149,421 |
There is a 68% probability that the return in any one year will be within the range of 1.1% to 13.6%.
The effect on the trust’s statement of financial performance and statement of financial position as at 31 March 2007, due to a possible change in market factors, is represented in the following table:
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NZ Gazette 2008, No 143
✨ LLM interpretation of page content
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ASB Community Trust Financial Performance Statement
(continued from previous page)
💰 Finance & Revenue26 May 2008
Financial Liabilities, Investment Portfolio, Risk Management, Trust Funds, Market Risk, Interest Rate Risk, Currency Risk, Pricing Risk